ITAT (Delhi): No TDS on Commission for Order Procurement by Foreign Agents
ITAT (Delhi): No TDS on Commission for Order Procurement by Foreign Agents
The Delhi bench of the Income Tax Appellate Tribunal has ruled in favour of Alnoor Exports (the assessee), stating that the commission paid to foreign agents for procuring orders does not come under the category of Technical, Managerial, or Consultancy services. As a result, the assessee was not obligated to deduct TDS under Section 195 in conjunction with Section 9(1)(vii) of the Income Tax Act.
In summary, the matter revolved around the Assessing Officer's disapproval of commission expenditures totaling ₹80,32,863 in the assessee's profit and loss (P&L) account for export sales. This disapproval was rooted in the assessee's failure to deduct Tax Deducted at Source (TDS) under Section 195 of the Income Tax Act.
The assessee argued that the commission was disbursed to foreign agents for services connected to export sales, and all payments were routed through formal banking channels. These commission payments were intended for services performed outside of India, and the funds were transferred overseas. The Commissioner of Income Tax (Appeals) [CIT (A)] endorsed the assessee's explanation and subsequently removed the disallowance.
The Bench noted that the Commissioner of Income Tax (Appeals) [CIT (A)] had invalidated the disallowance of commission disbursed to foreign agents. This decision was grounded in the assertion that the assessee was not obligated to deduct Tax Deducted at Source (TDS) for the commission paid to agents based outside India. These agents facilitated the acquisition of orders from buyers, all of whom were also located outside India and lacked a permanent establishment within the country.
The Bench concluded that the provisions outlined in Section 195 of the Act did not apply to the commission disbursed by the assessee. This was due to the fact that the commission's non-taxability in India was in accordance with the provisions stipulated in Section 9(1) of the Act. As a result, the Bench expunged the disallowance that had been enacted based on the application of Section 40 of the Act, pertaining to the failure to deduct TDS, while concurrently negating the disallowance itself.
The Bench asserted that the question regarding the applicability of Tax Deducted at Source (TDS) under Section 195 in conjunction with Section 9(1)(vii) of the Income Tax Act, for commission disbursed to foreign agents in order procurement, has been conclusively settled through the ruling of the Delhi High Court in the matter of DIT (International Taxation) Vs. Panalfa Autoelektrik Ltd. [LQ/DelHC/2014/2734]. In the cited case, it was established that the commission paid to foreign agents for order procurement does not fall within the scope of Technical, Managerial, or Consultancy services. Consequently, such payments do not invoke the provisions laid out in Section 9(1)(vii) of the Income Tax Act, in conjunction with Section 195 of the Act.
Hence, the Bench concluded that there was no cause to intervene in the CIT (Appeals)'s findings.
